February 6, 2005

The superficial packaging of macroeconomic improvements gives a false sheen to our economy. The fact of the matter is that even in 2005, as far as the underprivileged segment of society goes, things are as bleak as ever

FOOD, health and education are things that not only the ordinary man, but also a person earning a little more than the ordinary man find increasingly hard to afford. Last year’s constant chant of macroeconomic wonders, where rising income levels coupled with a low inflation rate, was supposed to make people more prosperous and comfortable; but it has now given way to the monotonous and repetitive excuses of rising fuel prices in the international market, shortage of wheat and cotton at home, and the general global unrest as reasons for the constant rise in the cost of living in the country.

The Pakistan Economic Survey 2003-2004 had some good news for our economy; the GDP rose by 6.4 per cent, public debt was down by almost six per cent and large-scale manufacturing increased by 17.1 per cent. But the most surprising figure was of poverty reduction. According to the survey report poverty had been reduced by 4.2 per cent. This seems a magical turnaround considering that all international surveys throughout the year had been lamenting the fact that despite the improvement in macroeconomic figures, poverty has been on the rise. There seems to be some contradiction in the survey report. The unemployment has increased to over eight per cent and the agriculture sector has shown a downfall, while inflation has increased. All of it points to the fact that the poor have suffered this crunch as most of them are involved in agriculture, while the rich have benefited from the improvement in the large-scale manufacturing growth rate.

FUELLING UP: Inflation measured by the Consumer Price Index or the CPI rose by 9.18 per cent in the first quarter of the fiscal year (July - September 2004-05), reinforcing a widely shared view that the full year inflation will rise beyond six per cent against the initial target of five per cent.

Data released by the Federal Bureau of Statistics (FBS) show that inflation measured by the Sensitive Price Index (SPI) shot up by 14.02 per cent during the same period which means the incidence of inflation was the highest for the poor. Inflation measured by the Wholesale Price Index (WPI) went up by 8.71 per cent, which signals that CPI and SPI inflation cannot be controlled easily in the coming months as the onset of Ramazan had already led to a rise in prices of many necessities.

In an earlier quarterly report, the central bank observed: “The upsurge in food inflation that appears driven by supply shocks as well as less than adroit management, clearly points to the considerable scope for improvement in managing the agri-product supply chain.” The SBP report acknowledged that “the incidence of inflation falls disproportionately on the most vulnerable (low income groups who are the least prepared to absorb the burden).” In simple words, a high rate of inflation hurts the poor the most. For those households whose monthly incomes range between Rs3,000 and Rs12,000, purchasing power of the rupee has declined by a bigger margin. For them the average purchasing power of Rs1,000 in July - May 2002-03 decreased to Rs884.60 in July 2003-04. The break-up of the 7.13 per cent increase in the CPI shows that the price of food and beverage registered the highest increase of 10.20 per cent in May 2004 over May 2003, followed by transport and communications (8.06pc) and house rent increased by (7.6pc).

Three factors have created this inflationary spiral, that is, the rising fuel prices in the early part of the year, the rocketing property prices in the later part of the year, and the rising cost of necessities, especially during Ramazan, because if an increase in input prices.

THE OIL TURMOIL: Oil has a dangerous tendency to invite controversy and politics. With the rocketing oil prices to $53 in the international markets as the result of the situation in Iraq, the refusal of Opec to lower international prices, the tendency to misuse possession of this endangered commodity is found even in Pakistan. In the beginning of the year the OCAC was using and abusing its power to decide on oil prices and declared price increases randomly and consistently. The government had finally intervened and kept domestic oil prices unchanged since May by deferring collection of petroleum development levy or the PDL. A higher-than-targeted collection of revenue and larger-than projected payments of dividends by state-run companies like the PTCL and the OGDCL have so far offset the impact of this deferment in the PDL. But there are indications that the government may start collecting the PDL and thereby allowing the domestic oil prices to rise in relation to the international prices by end of this year or early next year.

In any case, irrespective of the positive economic indicators, consumers have experienced a phenomenal jump in oil products. When Pervez Musharraf came to power, consumers were paying Rs24.40 for petrol, Rs10.66 for diesel, Rs10.55 for kerosene and Rs28.5 per litre for high octane blending component (HOBC) as on October 12, 1999.

On October 12, 2004, the rate of petrol surged to Rs36.92, up by 51.31 per cent, while 129 per cent rise has been witnessed in diesel rates to Rs24.37 per litre. A 128 per cent increase was seen in kerosene prices to Rs24 while HOBC price escalated by 43.40 per cent to Rs40.87 per litre. And now the OCAC has raised the petrol price by two rupees per litre to Rs 42.39, and the rate of high speed diesel has gone up by 95 paisa to Rs27.16 per litre.

Most of this has been due to the monopoly of the OCAC. Let us look at the history of this authority to gauge its power to exploit consumers time and again during the year till the government put a cap on price increases by this authority.

The official control on regulation of petroleum prices was withdrawn in pursuance of the federal cabinet’s decision of Dec 15, 2000, much before Prime Minister Zafarullah Jamali’s government assumed office. Petroleum prices were to be regulated by an independent body to be set up by the federal government. The proposed body — the Petroleum Regulatory Board — was never constituted and instead it was planned to entrust this task to the Oil and Gas Regulatory Authority (OGRA). In the meantime this function was allowed to be performed by the oil marketing advisory committee, which had been in existence for quite some time as merely a data collecting agency. Time and again Wapda, the press and experts had proposed that the Oil Companies Advisory Committee (OCAC) was a forum comprising only the nominees of oil marketing companies and refineries and that the consumers’ interests were not protected. It had demanded among other things that the prices of petroleum products, including furnace oil of which Wapda was the biggest consumer, may be regulated by the OGRA. For inexplicable reasons, the government allowed it to maintain the status quo. The allegations, and those too with facts and figures, had been made against unreasonable price hikes, announced almost every fortnight, yet the government did not pay any heed to this matter till May 2004.

Admittedly, petroleum products’ prices are linked to the international market, but the raise and sometimes, though rarely, reduction in prices were disproportionate to world oil price fluctuations. Consumers in Pakistan were made to pay much more than the increase in world oil prices and likewise the benefits of a drop in world oil prices was not passed on to Pakistani consumers. Undue jacking up of petroleum prices accounted for the astronomical rise in the profits of oil marketing companies and refineries whose share value in the market is going up. According to conservative estimates, Rs30 billion were pocketed as extra profit by the refineries and petroleum marketing companies.

This undue profit being siphoned off had a disastrous impact on transportation cost, production cost of industries, power generation cost and rise in the price of essential commodities. It seemed that the beneficiaries of the unchecked functioning of the OCAC had the tacit support of officials concerned in the ministry of petroleum.

The National Refinery declared a dividend of 75 per cent. The same is true of other refineries as well as oil marketing companies which pocketed huge profits on account of oil price fluctuations as it was their representatives (which constitute the Oil Companies Advisory Committee) revised on a fortnightly basis the prices of petroleum products. After a lot of hue and cry and media uproar, the government finally put a cap on any increase in fuel prices, but only after the damage had been done, and in any case, it is only a temporary phenomenon which is going to soon give way to the international price rise of this commodity.

SHELTER TOO PRICEY: The high unemployment rate has been caused by the lack of investment in the agriculture sector and little growth in small and medium sector industries. In the last few months all investment in Pakistan has been diverted to real estate, as no other business is giving a return matching the return in investment in real estate. Everybody in this country has decided to invest every single penny that they have in property.

Some housing societies have evolved a novel way of amassing wealth by offering an undisclosed number of plots and opening and closing membership the same day, thereby creating an artificial shortage of application forms and engineering a trading of forms at prices up to Rs30,000 for a form of the face value of Rs500. Most of the forms are purchased by real estate companies and their agents. On ‘opening’ a file (a technical term to deposit file-opening charges), a premium of up to Rs100,000 is added to it. The file is then quoted in the market on a daily basis like shares on the stock market. There is no documentation and the government gets no taxes at all.

In Lahore and Karachi, the price of a one-kanal plot file in a new phase of a certain society is up to Rs6.5 million from one million rupees six months ago. The development of many of these phases has yet to commence. All this is adversely affecting the productive sector and the stock exchange investment climate and employment opportunities in the country.

Investors are diverting their money to property both here and abroad. Foreign exchange is reportedly going out through couriers in suitcases in addition to ‘havala’ for this purpose. Investment activity has slowed down to a trickle on account of high gains in property trading.

But how long will the property boom last and how far are the investments genuine? Many experts warn that a large part of investment is done with the purpose of money laundering and artificial shortage of plot files and manipulation of the land mafia is common.

Real estate is one of the favourite businesses of blackmarketers to convert their black money into white. There is little checking and investors are not bound to pay any taxes while buying or selling property. The unprecedented boom in property prices has sparked the mushrooming of moneymaking tools for unregistered dealers. The worst sufferers are the middle class, who, tempted by the high gains and disappointed by the low returns on saving deposits in banks, have invested all their money in these bogus schemes, often discovering that they existed only on files. As speculation becomes the rule of investing money, the innocent and the ignorant end up losing more and more.

LE MISEERABLES: It is thus hard to believe that with so many inflationary forces against them, the poor can survive. Unemployment and inflation are lethal weapons of mass depression. The number of suicides has jumped dramatically in the last six months. Violence has become a norm. Ignominious deportation of desperate Pakistanis seeking a living abroad are widespread. The death of three illegal Pakistani immigrants in the UAE, two of them dying of starvation and a third injured when he was shot by border guards in the Gulf state, are a result of this desperate pursuit of livelihood. Their decomposed bodies were found days later. They are not the first nor will be the last persons to fall victim to unemployment, ignorance and official indifference. Reports of Pakistanis dying of suffocation being stuffed in vans carrying them to cherished destinations in the West and of Pakistanis arrested and rotting in jails abroad or being humiliated and deported, fill newspaper columns every month.

The flow of people from Pakistan going out on false promises of jobs after paying hefty sums to travel agents and immigration racketeers is a steady one.

Apparently, there is a heavy trade of smuggling of human beings to other destinations. Many of those operating this racket are well known to the authorities, and yet nothing is being done to prevent this exploitation of credulous and frustrated youth from the rural and less developed areas of the country. A recent report from Lahore stated that “immigration consultant” firms implicated in smuggling people were still doing business in the city.

Unemployment has to be addressed in the rural areas. Radio and other media should be used to warn people of the hazards waiting for them when they go out illegally. Thus the growing number of killing oneself and killing others continues to escalate. When the price of living becomes exorbitant, death seems to be more viable and feasible.

CONCLUSION: How to keep a check on the ruthless drive of the monopolistic companies to overcharge the poor? What is the check to curb this mindless speculation in property dealing? What is the check to the unbelievable figures the government publishes to pacify the public? What is the check on the misery and depression which has been leading to suicides, murders and violence?

When the state fails to protect the underprivileged and the undernourished it becomes the duty of those few who have humanity and ability to keep on raising their voices to spread consumer activism to a level where the government and powerful organizations accept them as a force to reckon with. Very few NGOs have really taken up this issue of consumer exploitation. An annual report is published on violation of consumer rights but that is not enough. What we need is a movement by consumer associations through the collaboration of the media to highlight atrocities of the organizations involved in this manipulation process. The electronic media has now enough air time available to be used by consumer activist organizations to continuously report on the exploitation of the poor. A consistent campaign will definitely act as a deterrent on the so-called “socially responsible” multinationals that are extremely image conscience and would definitely like to avoid such scandals. Without such steps we will see the superficial packaging of macroeconomic improvements giving a false sheen to our economy while hidden underneath is a mass of molten lava ready to erupt in violence and socio-economic destruction, given the slightest of provocation.

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